Morgan Stanley Gets Favorable Treatment from SEC

Morgan Stanley and its Chief Executive John Mack got preferential treatment in a 2005 investigation of alleged improper trading at Pequot Capital Management, according to a government report obtained by CNBC.

The allegations were first raised three years ago by SEC investigator Gary Aguirre, who claimed he was fired after seeking permission from his supervisors to take Mack's testimony. This new report, a second investigation by the SEC's Inspector General, concludes there was a connection between Aguirre's firing and his efforts to take Mack's testimony.

Neither Mack not Morgan Stanley have been charged with any wrongdoing.

The report also concludes that SEC staffers leaked information about the investigation to Morgan Stanley, in violation of Commission policy.

The investigation involved unusual trading at Pequot, a large hedge fund, ahead of General Electric's acquisition of Heller Financial in 2001.

The federal report on the incident comes at a time when the SEC is under much scruntiny over its handling of the subprime mortgage crisis.

An investigation by the Commission's previous Inspector General found no evidence of preferential treatment, but a Senate Finance Committe investigation took issue with that report. This latest investigation calls for disciplinary action against several SEC officials, including Enforcement head Linda Thomsen.